Competitors Shape Strategy to Gain Edge in Web Services

By STEVE LOHR

Published: February 3, 2003

Quietly, with no press release, Microsoft decided last month to change the name of its next major product. The new version of its software for running computer networks, which was long billed as Windows .Net Server 2003, will drop the ".Net" when it comes to market this spring.

The branding change furrowed many a knowledgeable brow in the computer industry. Bill Gates, Microsoft's chairman, had often said that .Net was a "bet-the-company strategy" for its flavor of Web services, a software technology intended to enable seamless machine-to-machine communication.

Is Microsoft retreating from what many consider the next big thing in computing? The company insists that it is not and that the name change is merely for "clarification." A small logo saying ".Net connected" will be attached to the packaging for Windows Server 2003.

The shift, it seems, is meant to underline the importance that Microsoft attaches to Web services. The company's overarching strategy is that anything significant in computing should become tightly bound to the Windows operating system. Windows, undiluted, is the brand. And although the .Net technology, like the Internet browser, has some independence from the operating system, its feet are firmly planted in Windows.

The race to deliver Web services will shape competition in the computer business over the next several years. And there are broadly two paths: Microsoft on one side and a handful of major software competitors on the other side, including I.B.M. , BEA Systems , Sun Microsystems and Oracle.

While the Microsoft approach links Web services technology closely to its operating system, the other camp is putting the technology in a layer of software separate from the operating system, called middleware. That lets it run on a variety of operating systems.

Web services are among the few bright spots for the industry amid the slump in technology spending. Corporate customers speak optimistically of the promise of cost savings and productivity gains from Web services.

"When a technology this sophisticated makes so much sense for the business, it has legs," said Robert A. Bonomo, senior vice president of enterprise technology at OppenheimerFunds. "This is not a flash in the pan."

The term "Web services" describes software technology that is based on a series of industry-standard protocols — known by acronyms like XML, SOAP, WSDL and UDDI — for describing, identifying and communicating data over the Web in a consistent fashion. These protocols, led by XML (Extensible Markup Language), can be read by many types of machines.

Web services can be seen as the next big evolutionary step for the Internet and the Web. The first step was to create the computer protocols and markup language that allowed people to see text and graphics and to navigate by clicking on links.

Web services standards — developed by industry and academic computer scientists — seek to enable machine-to-machine communication, allowing corporate and personal databases to transport information seamlessly. The goal is a new level of computer-mediated automation in business and personal transactions, promising big gains in productivity and convenience.

In their initial plans, Microsoft and others detailed possible consumer uses, like a patient's calendar database working with a doctor's database to arrange an appointment. Or an individual's personal and credit card databases could, once preferences were set, order flowers automatically and have them delivered for Mother's Day.

But early uses, now being developed and put into practice, involve more mundane business functions. For example, corporate databases are sharing information to streamline insurance claims, process retail orders or arrange car financing.

At Allstate Insurance, Web services technology is being used to allow several policy management systems to communicate. The aim is to reduce paperwork and improve the efficiency of Allstate's thousands of agents nationwide.

Cole National , a retail company, is starting to use the technology to streamline claims-handling at its Pearle Vision and Target Optical stores, and to order and ship through third-party Web sites for its Things Remembered gift shops.

Route One, a company formed last year by the financing arms of DaimlerChrysler , Ford Motor , General Motors and Toyota Motor , is trying to make it easier for dealers to arrange financing for customers. The company depends on Web services technology to link the specialized software and disparate databases of dealers, credit bureaus, banks and auto finance companies.

"We are essentially a Web services business," said Joel Gruber, chief information officer of Route One. "Without that technology, the cost of what we're doing would be prohibitive."

The software competition in Web services will be fierce, but it promises to be a different kind of rivalry than in the past. For decades, technology companies have competed by persuading customers to buy their homegrown products. The goal was to "lock in" customers of a company's proprietary software and hardware so that switching to another supplier and starting over would be extremely costly and arduous.

Web services should make the lock-in strategy harder to pursue because the standards allow data to be easily shared rather than locked inside proprietary software. One sign of the changed terms of trade was the creation last year of the Web Services Interoperability Organization to ensure industry cooperation in smooth data sharing. The group was founded by the two companies that most analysts say will be the leading competitors in the Web services field: Microsoft and I.B.M. They were joined by BEA Systems, among others, and later Sun.

"Web services is a heterogeneous technology that connects your new stuff and your old stuff together," observed John Swainson, general manager for I.B.M.'s Web services software. "So our cooperation with Microsoft is in some sense a deal with the devil for both of us. We're letting them into our world and they're letting us into theirs."

The Web services project at Allstate Insurance is an example. At its big data center outside Chicago, Allstate has I.B.M. mainframes, Sun machines, PC servers running Windows and other systems. Its databases include I.B.M.'s DB2, Oracle and Microsoft's SQL. To allow information to flow smoothly among its computer systems, Allstate is using Microsoft .Net software tools and its Windows server software. But to share data with its big systems, it is using WebSphere, I.B.M.'s Web services middleware software. The Microsoft and I.B.M. software have to talk to each other.

"Web services gets you out of the world of proprietary messaging software," said Kevin Rice, a technology manager at Allstate.

The software companies competing against Microsoft are offering middleware software, based on Web services standards like XML and Java, a programming language created by Sun. They are betting that this will move industry competition away from the operating system and especially away from Windows.

To be sure, I.B.M., BEA, Sun and others in the non-Microsoft camp all compete against each other as well. It is still early, and sorting the winners from the losers will likely take years. Yet most analysts and industry executives say they believe that over time I.B.M. will emerge as the leading rival to Microsoft.

"The gorillas in this are I.B.M. and Microsoft," said Thomas M. Siebel, the chief executive of Siebel Systems , whose customer relationship management software is being fine-tuned to run on both I.B.M.'s WebSphere and Microsoft's .Net technology.

Microsoft's Web services technology is tailored for Windows. But the .Net technology is trying to appeal to a wide range of programmers by letting them write in many different computer languages, including Cobol, C++, Perl, Smalltalk, Java and C#, which is Microsoft's answer to Java. By contrast, the middleware of the non-Microsoft camp runs on any operating system, but it is geared toward Java programmers.

"Our goal is to make Web services easy for software developers, businesses and end users," said Neil Charney, a director in Microsoft's platform strategy group.

A poll of corporate technology executives by CIO Magazine, released today, suggests that Microsoft has at least attracted the most attention in the early going for Web services. When the executives were asked what they expect to be the leading "Web services platform," 47 percent chose Microsoft's .Net, while I.B.M.'s WebSphere came in second with 19 percent.

The survey gave no hint of whether the Microsoft vote reflected enthusiasm for the .Net technology or fatalism that Microsoft, the world's largest software company, would prevail in this market as well.

Its competitors contend that, in the end, most large corporations will limit their commitments to .Net, fearful of having their businesses too beholden to Microsoft. "People are still very leery of Microsoft lock-in," said Tod Nielsen, BEA's chief marketing officer, who is a former Microsoft executive.

uietly, with no press release, Microsoft decided last month to change the name of its next major product. The new version of its software for running computer networks, which was long billed as Windows .Net Server 2003, will drop the ".Net" when it comes to market this spring.

The branding change furrowed many a knowledgeable brow in the computer industry. Bill Gates, Microsoft's chairman, had often said that .Net was a "bet-the-company strategy" for its flavor of Web services, a software technology intended to enable seamless machine-to-machine communication.

Is Microsoft retreating from what many consider the next big thing in computing? The company insists that it is not and that the name change is merely for "clarification." A small logo saying ".Net connected" will be attached to the packaging for Windows Server 2003.

The shift, it seems, is meant to underline the importance that Microsoft attaches to Web services. The company's overarching strategy is that anything significant in computing should become tightly bound to the Windows operating system. Windows, undiluted, is the brand. And although the .Net technology, like the Internet browser, has some independence from the operating system, its feet are firmly planted in Windows.

The race to deliver Web services will shape competition in the computer business over the next several years. And there are broadly two paths: Microsoft on one side and a handful of major software competitors on the other side, including I.B.M. , BEA Systems , Sun Microsystems and Oracle.

While the Microsoft approach links Web services technology closely to its operating system, the other camp is putting the technology in a layer of software separate from the operating system, called middleware. That lets it run on a variety of operating systems.

Web services are among the few bright spots for the industry amid the slump in technology spending. Corporate customers speak optimistically of the promise of cost savings and productivity gains from Web services.

"When a technology this sophisticated makes so much sense for the business, it has legs," said Robert A. Bonomo, senior vice president of enterprise technology at OppenheimerFunds. "This is not a flash in the pan."

The term "Web services" describes software technology that is based on a series of industry-standard protocols — known by acronyms like XML, SOAP, WSDL and UDDI — for describing, identifying and communicating data over the Web in a consistent fashion. These protocols, led by XML (Extensible Markup Language), can be read by many types of machines.

Web services can be seen as the next big evolutionary step for the Internet and the Web. The first step was to create the computer protocols and markup language that allowed people to see text and graphics and to navigate by clicking on links.

Web services standards — developed by industry and academic computer scientists — seek to enable machine-to-machine communication, allowing corporate and personal databases to transport information seamlessly. The goal is a new level of computer-mediated automation in business and personal transactions, promising big gains in productivity and convenience.

In their initial plans, Microsoft and others detailed possible consumer uses, like a patient's calendar database working with a doctor's database to arrange an appointment. Or an individual's personal and credit card databases could, once preferences were set, order flowers automatically and have them delivered for Mother's Day.

But early uses, now being developed and put into practice, involve more mundane business functions. For example, corporate databases are sharing information to streamline insurance claims, process retail orders or arrange car financing.

At Allstate Insurance, Web services technology is being used to allow several policy management systems to communicate. The aim is to reduce paperwork and improve the efficiency of Allstate's thousands of agents nationwide.

Cole National , a retail company, is starting to use the technology to streamline claims-handling at its Pearle Vision and Target Optical stores, and to order and ship through third-party Web sites for its Things Remembered gift shops.

Route One, a company formed last year by the financing arms of DaimlerChrysler , Ford Motor , General Motors and Toyota Motor , is trying to make it easier for dealers to arrange financing for customers. The company depends on Web services technology to link the specialized software and disparate databases of dealers, credit bureaus, banks and auto finance companies.

"We are essentially a Web services business," said Joel Gruber, chief information officer of Route One. "Without that technology, the cost of what we're doing would be prohibitive."

The software competition in Web services will be fierce, but it promises to be a different kind of rivalry than in the past. For decades, technology companies have competed by persuading customers to buy their homegrown products. The goal was to "lock in" customers of a company's proprietary software and hardware so that switching to another supplier and starting over would be extremely costly and arduous.

Web services should make the lock-in strategy harder to pursue because the standards allow data to be easily shared rather than locked inside proprietary software. One sign of the changed terms of trade was the creation last year of the Web Services Interoperability Organization to ensure industry cooperation in smooth data sharing. The group was founded by the two companies that most analysts say will be the leading competitors in the Web services field: Microsoft and I.B.M. They were joined by BEA Systems, among others, and later Sun.

"Web services is a heterogeneous technology that connects your new stuff and your old stuff together," observed John Swainson, general manager for I.B.M.'s Web services software. "So our cooperation with Microsoft is in some sense a deal with the devil for both of us. We're letting them into our world and they're letting us into theirs."

The Web services project at Allstate Insurance is an example. At its big data center outside Chicago, Allstate has I.B.M. mainframes, Sun machines, PC servers running Windows and other systems. Its databases include I.B.M.'s DB2, Oracle and Microsoft's SQL. To allow information to flow smoothly among its computer systems, Allstate is using Microsoft .Net software tools and its Windows server software. But to share data with its big systems, it is using WebSphere, I.B.M.'s Web services middleware software. The Microsoft and I.B.M. software have to talk to each other.

"Web services gets you out of the world of proprietary messaging software," said Kevin Rice, a technology manager at Allstate.

The software companies competing against Microsoft are offering middleware software, based on Web services standards like XML and Java, a programming language created by Sun. They are betting that this will move industry competition away from the operating system and especially away from Windows.

To be sure, I.B.M., BEA, Sun and others in the non-Microsoft camp all compete against each other as well. It is still early, and sorting the winners from the losers will likely take years. Yet most analysts and industry executives say they believe that over time I.B.M. will emerge as the leading rival to Microsoft.

"The gorillas in this are I.B.M. and Microsoft," said Thomas M. Siebel, the chief executive of Siebel Systems , whose customer relationship management software is being fine-tuned to run on both I.B.M.'s WebSphere and Microsoft's .Net technology.

Microsoft's Web services technology is tailored for Windows. But the .Net technology is trying to appeal to a wide range of programmers by letting them write in many different computer languages, including Cobol, C++, Perl, Smalltalk, Java and C#, which is Microsoft's answer to Java. By contrast, the middleware of the non-Microsoft camp runs on any operating system, but it is geared toward Java programmers.

"Our goal is to make Web services easy for software developers, businesses and end users," said Neil Charney, a director in Microsoft's platform strategy group.

A poll of corporate technology executives by CIO Magazine, released today, suggests that Microsoft has at least attracted the most attention in the early going for Web services. When the executives were asked what they expect to be the leading "Web services platform," 47 percent chose Microsoft's .Net, while I.B.M.'s WebSphere came in second with 19 percent.

The survey gave no hint of whether the Microsoft vote reflected enthusiasm for the .Net technology or fatalism that Microsoft, the world's largest software company, would prevail in this market as well.

Its competitors contend that, in the end, most large corporations will limit their commitments to .Net, fearful of having their businesses too beholden to Microsoft. "People are still very leery of Microsoft lock-in," said Tod Nielsen, BEA's chief marketing officer, who is a former Microsoft executive.